2011 Corporate Board of Directors Survey with Heidrick & Struggles

1 2011 Corporate Board of direCtors survey

2 0 1 1 C O R P O R A T E B O A R D O F D I R E C T O R S S U R V E Y

TA B l E O F C O n T E n T S

Introduction 2

Executive Summary: Key Results and Recommendations 2

Survey Questions and Descriptive Statistics 4

About The Rock Center for Corporate Governance at Stanford University 21

About Heidrick & Struggles 21

Contact Information 24

Copyright © 2011 by the Board of Trustees of the leland Stanford Junior University and Heidrick & Struggles. All rights reserved


do active Ceos Make the Best Board Members?New Survey from Stanford’s Rock Center and Heidrick & Struggles Examines the Pros and Cons

Active CEOs Might Be “Too Busy” to Be Effective

CEOs also more tainted by ethics lapses than board directors

A new survey from Stanford University’s Rock Center for Corporate Governance and Heidrick & Struggles has uncovered surprises about who makes the best board directors: it’s not necessarily the current CEOs that most companies seek out.

“The popular consensus is that active CEOs make the best board members because of their current strategic and leadership experience,” says David larcker, professor at the Stanford Graduate School of Business. In the 2011 Corporate Board of Directors Survey, when asked about potential problems a full 87 percent said that active CEOs are too busy with their own companies to be effective directors. A third of the respondents said that active CEOs were “too bossy/used to having their own way.”

“It’s great to have sitting CEOs on a board, but companies need to be aware of the costs associated with having them,” says Stephen A. Miles, Vice Chairman at leadership advisory firm Heidrick & Struggles. “Because active CEOs are so busy, they might be unavailable during a crisis or have to cancel meeting attendance at the last minute. They also have less time to review materials. For some, the demands of their full-time job make it hard for them to consistently be as engaged as they need to be.”

Analyzing responses from 163 directors of public and private companies across north America, the 2011 Corporate Board of Directors Survey reveals how directors think about the composition of the board and the effectiveness of various types of board members. Key findings include:

n Despite the fact that sitting CEOs are highly sought-after for board seats, 79% of directors said that, in practice, active CEOs are no better than non-CEO board members. “Companies need to differentiate between a CEO who brings caché to

the board and one who will actively contribute real work as a director,” says Mr. Miles.

n CEOs of companies that have experienced public ethical lapses are seen as far more “tainted” by the scandal than their boards are. “While only 37% of directors believe that an ex-CEO of a company that experienced substantial accounting or ethical problems can be a good board member, 67% believe a director of a similarly-plagued company can,” says Professor larcker. “Some directors do see value in having a CEO who has experienced – and hopefully learned from – mistakes in judgment. But far more are concerned about the stigma and perception issues in bringing aboard a CEO like this.”

n Boards are struggling to evaluate whether prospective board members will be a good fit for the company. “Fifty-one percent of directors see it as moderately difficult and 20% see it as extremely or very difficult to gauge whether a prospect will be a good addition to the board,” says Mr. Miles. “Boards are clearly finding it a challenge to determine someone’s ‘fit.’ A single person can ruin a great board, so boards need to spend considerable time evaluating this very subjective quality.”

n More than half of directors think that board turnover is too low. “The challenge of getting rid of board members is that there is a widespread assumption of board ‘tenure,’” says Professor larcker. “You may want to bring them on for three to five years, but they end up staying for ten. While egregious problems might be taken care of more quickly, it is much more difficult to get rid of an underperforming or irrelevant director who just happens to stay on too long.”

n Forty-six percent of companies do not engage in succession planning for their board of directors. “Just as we found in our study last year that companies are seriously lagging in CEO succession planning, boards aren’t doing a great job of planning for board succession either,” said Mr. Miles. “Sixty-six percent of directors do believe that board succession planning is an important best practice, but only 54% actually do it.”

E x E c u t i v E S u m m a r y : K E y r E S u lt S a n d r E c o m m E n d at i o n S

http://rockcenter.stanford.edu/

http://rockcenter.stanford.edu/

http://www.heidrick.com

http://www.heidrick.com/Consultants/Pages/12923.aspx

http://rockcenter.stanford.edu/2010/06/16/new-ceo-and-board-research-from-heidrick-struggles-and-stanford%E2%80%99s-rock-center-reveals-serious-gaps-in-ceo-succession-planning/


n Nearly 20% of lead directors are chosen by the CEO or chairman. “For obvious reasons, CEOs should not choose the lead director,” says Mr. Miles. “The CEO should be asked for input, but the ultimate choice needs to be made by the board.” Forty-seven percent of respondents said that their lead director was elected by the independent directors, but this number should be much higher.”

n More than 80% of board members are somewhat skeptical of the value of “professional directors.” “Even though there has been a call among some for increased use of professional directors — those who make it a full-time job to sit on boards — most directors don’t think that professional directors are any better than traditional board members,” says Professor larcker. “While some respondents believe that this group’s diversity of experience is an asset to a board, many are concerned that professional board members are too busy with other directorships to be effective.”

As companies think about who to bring onto the board that can deliver the greatest value, Professor larcker and Mr. Miles offer the following suggestions:

1. Re-think appointing the “name” CEO to the board. “Yes, a company gets great publicity when it recruits a big name onto the board,” says Professor larcker, “but you really need to think about what this person will actually deliver in value. If they are too busy or if they don’t fit the culture or have the right chemistry, it might not be worth it.”

2. Weigh “failure” when evaluating a prospective board member. “Obviously, personal ethical lapses should preclude someone from being chosen as a director, but there might be value in someone coming from a company that failed,” says Professor larcker. “Boards need to understand what this person’s contribution was to the failure. Did they learn important lessons, or are they likely to repeat past mistakes?”

3. Tread carefully when evaluating professional directors as board candidates. “It’s important to remember that boards must have a good, working relationship with their CEO in order to build value,” says Mr. Miles. “Ideally, a professional director comes from a background of multiple leadership positions where he or she has a deep understanding for what the CEO is going through. For these reasons, retired CEOs have the potential to make great professional directors. They can have a constructive dialogue with the CEO and can really contribute strategically and operationally.”

4. Take the lead director position much more seriously. “You should conduct a succession process for your lead director just as you would for a CEO or board seat,” says Mr. Miles. “The lead director should be the most respected member on the board — a first among equals. The nominating/governance committee needs to run this process and make sure that the best director is in the position. It should never be rotational as not every director is suited for this leadership role.”

5. Evaluate and refresh your board. “Of course most board members think they are above average,” says Professor larcker. “It’s human nature. However, the evaluation process should be structured so that companies get a clear understanding of who is adding real value and who is not. It is time to move beyond check-the-box board reviews and start to seriously evaluate the board’s effectiveness and its individual directors. Once you have this information, the chairman or lead director has to be ready to have the difficult conversation about how a director can improve, or whether it is better for them to step down.”

To speak with David Larcker or Stephen Miles about this research survey, please contact Helen Chang, Stanford Graduate School of Business, (650) 723-3358 or [email protected]; or Jennifer Nelson, Heidrick & Struggles, (404) 682-7373 or [email protected].

mailto:[email protected]

mailto:[email protected]


a. BaCkground

1. What is your present position? (Please check all that apply.)

Percent

chief Executive officer 15

retired chief Executive officer 15

chairman of the Board 17

retired chairman of the Board 5

lead director 10

Executive officer 13

retired Executive officer 7

outside Board member 66

other 9

0 10 20 30 40 50 60 70 80

Other

OutsideBoard Member

RetiredExecutive Officer

Executive Officer

Lead Director

Retired Chairmanof the Board

Chairman of the Board

Retired ChiefExecutive Officer

Chief ExecutiveOfficer

Percent

S u r v e y Q u e S t i o n S a n d d e S c r i p t i v e S tat i S t i c Stotal number of respondents = 163 responses (mostly complete) collected april to May, 2011

2. What is the revenue for the company that you are most closely identified with?

Percent

<$500 million 31

$500 million to $1 billion 14

$1 billion to $5 billion 25



>$20 billion 9

Total Percentage 100

0 5 10 15 20 25 30 35

>$20 billion

$10 billionto $20 billion



$500 millionto $1 billion

<$500 million

Percent


3. What is the industrial sector for the company that you are most closely identified with?

Percent

natural resources 5

non-durables 12

durables 21

regulated utility 2

Wholesale/retail 7

Financials 13

Services 26

High technology 14


0 5 10 15 20 25 30

High Technology

Services

Financials

Wholesale/Retail

Regulated Utility

Durables

Non-durables

NaturalResources

Percent

4. gender

Percent

Female 26

male 74


0 10 20 30 40 50 60 70 80 90 100

Male

Female

Percent

5. age

Percent

< 30 0

31 to 40 2

41 to 50 12

51 to 60 37

61 to 70 40

> 70 9


0 5 10 15 2020 25 30 35 40

> 70

61 to 70

51 to 60

41 to 50

31 to 40

< 30

Percent

6. What is your present board service?

6.a. number of public, for-profit boards

Percent

0 26

1 40

2 16

3 13

4 4

5 1

0 5 10 15 2020 25 30 35 40

5

4

3

2

1

0

Percent


6.b. number of private, for-profit boards

Percent

0 48

1 32

2 10

3 4

4 2

5 1

> 5 3

0 10 20 30 40 50

> 5

5

4

3

2

1

0

Percent

6.c. number of not-for-profit boards

Percent

0 35

1 30

2 22

3 4

4 6

5 2

>5 1

0 5 10 15 20 25 30 35

> 5

5

4

3

2

1

0

Percent

6.d. total number of boards - this is computed from the above three questions

Percent

0 5

1 13

2 19

3 22

4 13

5 10

>5 18

0 5 10 15 20 25

> 5

5

4

3

2

1

0

Percent

7. are you a professional board member or director (a director whose primary job is to serve on boards)?

Percent

yes 29

no 71


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent


B. planning for neW Board MeMBers

8. Who in your company is responsible for identifying new candidates to serve on the board of directors (Please check all that apply):

Percent

cEo 18

chairman 16

lead director 6

other directors 8

nominating & Governance committee 28

Full Board of directors 15

External consultants 6

other (please specify 1

0 5 10 15 20 25 30

Other

ExternalConsultants

Full Boardof Directors

Nominating& Governance

Committee

Other Directors

Lead Director

Chairman

CEO

Percent

9. Who in your company has primary responsibility for identifying candidates to serve on the board (please check only one):

Percent

cEo 11

chairman 14

lead director 1

nominating & Governance committee 62

Full Board of directors 7

External consultants 2

other 3


0 10 20 30 40 50 60 70

Other

ExternalConsultants

Full Boardof Directors

Nominating& Governance

Committee

Lead Director

Chairman

CEO

Percent

10. When does your company typically begin the process of identifying candidates to serve on the board: (please check only one)?

Percent

after an outgoing director has stepped down 6

While an outgoing director is in the process of stepping down 26

Before an outgoing director announces plans to step down 49

other 19


0 10 20 30 40 50 60

Other

Before…

While…

After…

Percent

Selected other responses:

need new skills

When a need for a particular skill set is identified or required (new expertise sought OR replacement)

When someone that would add value to the board is identified

Ongoing with assumed 1-2 year lead; ongoing review of potential candidates

We are constantly looking to expand the Board

When board assessments reveal the need for certain capabilities/ skills/insights that are not currently represented on the Board

When modifications to the strategy are made

approaching mandatory retirement

Well in advance of mandatory retirement dates

When a director is approaching mandatory retirement or term limits

acquisition

Acquisitions bring directors


11. does your company develop a formal written document that outlines the skills, competencies, and experiences required for the next board member (“skills and experience profile”)? (please check only one)

Percent

yes 60

no 40


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

12. (if yes to q11) How different is the skills and experiences profile for your next board member from the skills and experiences profile of the outgoing director (please check only one):

Percent

Extremely different 4

very different 21

moderately different 46

Slightly different 20

not at all different 9


0 10 20 30 40 50 60

Not at alldi�erent

Slightly di�erent

Moderatelydi�erent

Very di�erent

Extremelydi�erent

Percent

13. How difficult is it to evaluate whether a prospective board member will be a good choice (in terms of “chemistry,” experience, and knowledge) for the company? (please check only one)

Percent

Extremely difficult 3

very difficult 17

moderately difficult 51

Slightly difficult 22

not at all difficult 7


0 10 20 30 40 50 60

Not at alldi�cult

Slightly di�cult

Moderatelydi�cult

Very di�cult

Extremelydi�cult

Percent

14. is the present turnover of board members on u.s. Corporate Boards (please check only one)

Percent

much too low 8

low 47

about right 44

High 1

much too high 0


0 10 20 30 40 50 60

Much too high

High

About right

Low

Much too low

Percent


C. Board suCCession planning

15. does your company engage in succession planning for the board of directors? (please check only one)

Percent

yes 54

no 46


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

16. (if yes to q15) Where is board succession planning primarily discussed (please check only one):

Percent

meetings of the full board 21

meetings of the nominating and governance committee 71

informally among directors 4

other (please specify) 4


0 10 20 30 40 50 60 70 80

Other(please specify)

Informallyamong directors

Meetings ofthe nominating

and governancecommittee

Meetings ofthe full board

Percent

17. (if yes to q15) How often is board succession planning discussed in formal board or committee meetings (please check only one):

Percent

one meeting per year 24

two meetings per year 36

more than two meetings per year 33

Every few years 6

never 1


0 5 10 15 20 25 30 35 40

Never

Every few years

More than twomeetings per year

Two meetingsper year

One meetingper year

Percent

18. Which of the following statements best summarizes your opinion of board succession planning (please check only one):

Percent

it is an important best practice 66

it is useful only when the board has critical directors whose loss would be very bad for the company 26

it is not useful at all 8


19. does your company have board members with an expertise in Ceo succession planning (i.e., they have led or have participated in three or more succession processes in the past as a Ceo or director):

Percent

yes 66

no 34


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent


20. (if yes to q19) Which of the following directors have expertise in succession planning (please check all that apply):

Number

chairman 79

lead director 48

chair of the nominating and Governance committee 69

director(s) other than these 93

0 20 40 60 80 100

Director(s)other than these

Chair ofthe Nominating

and GovernanceCommittee

Lead Director

Chairman

Percent

21. When recruiting for an open board seat, does your company consider whether a candidate has previous experience in Ceo succession planning?

Percent

yes 24

no 76


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

d. Ceos as Board MeMBers

22. are directors who are active Ceos better than non-Ceo board members?

Percent

yes 21

no 79


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

23. What traits of active Ceos make them attractive board candidates (please check all that apply):

Percent

Strategic expertise 77

risk management expertise 45

operational expertise 74

Experience responding to a crisis or failure 43

leadership qualities 67

Extensive personal and/or professional networks 46


0 10 20 30 40 50 60 70 80

Other

Extensivepersonal…

Leadershipqualities

Experienceresponding…

Operationalexpertise

Risk manage-ment expertise

Strategicexpertise

Percent


Current knowledge

Current industry knowledge

Current issues, current issues experience

External global market dynamics perspective

ability to identify with the Ceo in terms of issues

They are currently “in the flow” of business issues

They are currently experiencing some of the same problems as our CEO

Retired CEOs bring considerable perspective but not the immediacy of serving CEOs


24. What traits of active Ceos make them unattractive board candidates (please check all that apply):

Percent

too busy with their company to be effective directors 87

too interested in networking/promoting their own company to be effective directors 21

too bossy/used to having their way 33

not good collaborators 28


0 20 40 60 80 100

Never

Not goodcollaborators

Too bossy…

Too interested…

Too busy…

Percent


Big ego

not good listeners

Too generous with compensation

25. are directors who are retired Ceos better board members than active Ceos?

Percent

yes 55

no 45


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

26. are directors who are retired Ceos better than average board members?

Percent

yes 46

no 54


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

27. How many years before the experiences of a retired Ceo become outdated and are no longer valuable to current board service?

Percent

less than 3 years 10

more than 3 but less than 5 years 16

more than 5 but less than 10 years 20

more than 10 years 16

cEo experience never becomes outdated 38


0 5 10 15 20 25 30 35 40

CEO experience never outdated

More than10 years

More than 5 butless than 10 years

More than 3 butless than 5 years

Less than 3 years

Percent


28. Can an ex-Ceo of a company that experienced substantial accounting and ethical problems be a good board member at another company? (please check only one)

Percent

yes 37

no 63


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

29. please briefly explain your answer to q28


not a good fit due to credibility and ethical issues

Directors need to be role models for ethical behavior

Ethical problems are not caused by a lack of knowledge, they are caused by character flaws (and character doesn’t change)

I would have more problems with the ethical issues than the accounting ones, but both are problematic — he/she was in charge.

Although I think someone with this experience could be great, the stigma and perception issues would prevent them from being effective

May have difficulty establishing credibility/trust, however depends on who caused them, but it does show a problem managing and controlling information and risk

Tone at the top is a key driver of corporate culture and the CEO is the most influential person in setting tone at the top. Accounting and ethics issues at his / her company are usually the result of problems with CEO performance.

not a good fit due to potential reputational and judgment issues

Absolutely not. This concept smacks of ‘reward for bad behavior’ thinking. Different if the CEO went in and reversed the problems.

The risk to the new organization is too difficult to assess relative to the upside. Was it a failure in oversight, knowledge, other? How does the board assess whether the CEO has learned from the past problems adequately? How can the board assess this?

Reputation risk outweigh[s] the experience

not a good fit as ability to assess risk may be deficient

Assuming the problems occurred during his/her tenure, there is a reputational risk that may affect his/her ability to perform well

If the issues arose on the CEO’s watch they should have had the processes in place to see the risks and correct before they became problems for the company, the employees and shareholders

earnings experience may be a good teacher

A good CEO learns why he missed the flaws, and does not drop the ball twice, though be careful of flawed characters.

As long as the CEO was not involved (aware of or acting in) in personal egregious behavior and the CEO is able to openly speak to lessons learned so that Board can learn from his/her experience. However, there may always be a question mark around that person

I would say yes depending on the situation — if the CEO has learned from the mistake, he/she could be very valuable

They may be a productive board member in a private company depending on their expertise in the segment or growth initiatives that do not track culture

If the CEO recognized the deficiencies and tried to be transformational, then yes. But if the CEO accepted status quo, then no

There either is or is not a culture of ethical behavior and compliance or not. The CEO sets the tone. HOWEVER, there are CEOs who have inherited problems they did not create and they should not be blanketed with the above statement

These problems may have strengthened the CEOs ability to respond effectively and plan proactively

30. Can a board member (not the Ceo) at a company that experienced substantial accounting and ethical problems be a good board member at another company? (please check only one)

Percent

yes 67

no 33


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent


31. please briefly explain your answer to q30


ok if not closely involved-is highly situation dependent

As long as they are not too closely associated with the scandal and the perception is that this particular board member was not complicit in the problems

Each circumstance can be different. A board member must rely on information supplied to him. You can question, but not get honest answers

If this board member was part of the solution and not part of the problem, (s)he might make an outstanding board member

not a good fit due to potential reputational, judgment and trust issues

Although less strongly than the explanation to the preceding question (we may think of mitigation factors such as the behavior of the Board Member in trying to prevent or resolve the problem), there is also a potential reputational risk involved…

If it is not the CEO or the CFO - possibly. Even then you have to decide if it is worth the reputational risk to the company

At the end of the day it is the Board that shareholders place trust in and they must have and show understanding of the company’s accounts

Most likely not since the level of the person being recruited to the Board is C Suite and they are responsible for running the Enterprise along with their peers and CEO

Yes, if they were brought in to solve the problem. no if they were part of the problem. If they were part of ethical issues, nEVER!

yes– experience is a good teacher

A good director learns why he missed the flaws, and does not drop the ball twice, though be careful of flawed characters.

As long as the person was not the cause of the problem — s/he must have high integrity and scrupulous ethics

Assuming the Board member was not involved in the irregularities, he or she should have learned valuable lessons from the experience

If the director was the person who uncovered the problems and led the investigation, he/she could be a great board member. In contrast, if he/she was there for a decade and never dug into issues that ultimately proved problematical…

This truly depends on the situation. For example, if a new board member was instrumental in discovering the problems, then this board member is hugely valuable to others!

e. separating tHe CHairMan and Ceo positions

32. does your company separate the Chairman and Ceo roles? (please check only one)

Percent

yes 68

no 32


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

33. (if yes to q32) How many years ago were the positions separated?

Percent

1 6

2 8

3 11

4 8

5 16

6 to 10 24

>10 8

always 19


0 5 10 15 20 25

Always

> 10

6 to 10

5

4

3

2

1

Percent


34. (if yes to q32) What event or events caused the separation of Ceo/Chairman positions? (please check all that apply)

Percent

Pressure from large shareholders 4

Proxy advisor (iSS or Glass-lewis) recommendation 4

legislative action 2

Board members view this as a best practice 38

it has always been the case for our company 25

other 20

0 5 10 15 20 25 30 35 40

Other

It has alwaysbeen the case…

Board membersview this

as a best practice

Legislative action

Proxy advisor (ISSor Glass-Lewis)

recommendation

Pressure fromlarge shareholders

Percent


Concern over leadership qualities of promoted CEO

Part of implementation of succession plan. needed transition period

Retirement of the previous CEO and hiring of a new first time CEO who the board felt needed mentoring

35. (if yes to q32) is the separation due to a Ceo succession event?

Percent

yes 41

no 59


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

36. (if yes to q35) is this separation expected to be permanent or temporary?

Percent

Permanent 95

temporary 5


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

f. lead independent direCtor

37. does your company have a lead independent director?

Percent

yes 50

no 50


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent


38. (if yes to q37) How is the lead director selected?

Percent

chosen by the cEo or chairman 18

chosen by the nominating and Governance committee 21

Elected by independent directors 47

rotated among independent directors 7

other reason 7


0 10 20 30 40 50

Other reason

Rotated amongindependent

directors

Electedby independent

directors

Chosen bythe Nominating

and GovernanceCommittee

Chosen by theCEO or chairman

Percent

39. (if elected to q38) How frequently does the lead director election occur?

Percent

Every year 43

Every 2 years 12

Every 3 years 12

no set schedule 33


0 10 20 30 40 50

No set schedule

Every 3 years

Every 2 years

Every year

Percent

40. (if rotated to q38) How frequently is the lead director position rotated?

Percent

Every year 20

Every 2 years 60

Every 3 years 0

no set schedule 20


0 10 20 30 40 50 60

No set schedule

Every 3 years

Every 2 years

Every year

Percent 41. (if yes to q37) is the lead independent director

at your company the senior-most outside (nonexecutive) director?

Percent

yes 40

no 60


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

42. (if yes to q37) is the lead independent director at your company the most highly respected nonexecutive director?

Percent

yes 39

no 61


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent


43. (if yes to q37) does the lead independent director have personality attributes (such as the ability to build consensus) that specially equip this person to be effective in this position?

Percent

yes 86

no 14


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

44. (if yes to q38) does the lead independent director have prior board experience that is more extensive than the average director?

Percent

yes 55

no 45


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

45. Which of the following statements best summarizes your opinion of the lead independent director position in your company (please check only one):

Percent

it is an effective position that is a best practice 81

it is something that is done to simply satisfy exchange listing requirements 7

it is something that is simply “window dressing” for our shareholders 12


0 20 40 60 80 100

Window dressing

Exchange listingrequirements

Effective position

Percent

g. professional Board MeMBers

In the following questions, we refer to a professional board member as a director whose primary job is to serve on boards (i.e., these individuals have prior executive experience, but currently they have no other full-time job than to sit on boards). Traditional board members are individuals that either have a full-time job or other professional interests. Most of their annual income is not derived from compensation for board positions.

46. do you have any professional directors on your board?

Percent

yes 63

no 37


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

47. are professional directors better than traditional board members?

Percent

yes 19

no 81


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent


48. What traits about professional board members make them attractive board candidates (please check all that apply):

Percent

Experience with multiple companies 86

diversity of background 62

Experience with successful companies 58

Experience with failed companies 36

Experience managing a crisis 50

Extensive professional networks 40

0 20 40 60 80 100

Extensive profes-sional networks

Experiencemanaging a crisis

Experience withfailed companies

Experiencewith successful

companies

Diversityof background

Experiencewith multiple

companies

Percent

49. What traits of professional board members make them unattractive board candidates (please check all that apply):

Percent

too busy with other directorships to be effective 56

too interested in networking/promoting their own career to be effective 27

lack independence (because they rely on director fees as primary income) 24

no current experience in executive position 31

they are simply doing this for the money 26

too old 16

other 10

0 10 20 30 40 50 60

Other

Too old

Doing thisfor the money

No experience

Lackindependence

Too interestedin networking/

promoting

Too busy withdirectorships

Percent

H. Board oBservers

In the following questions, we refer to a board observer as an individual who attends board meetings or committee meetings, but is neither a full-time board member nor a paid consultant.

50. does your company have board observers?

Percent

yes 17

no 83


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent


51. (if yes to q50) How many board observers are present in a typical meeting?

Percent

1 32

2 5

3 0

4 26

>4 37


0 5 10 15 20 25 30 35 40

> 4

4

3

2

1

Percent

52. (if yes to q50) How are board observers compensated for their services? (please check all that apply)

Percent

cash 12

options or stock 4

they are not compensated 84


0 20 40 60 80 100

They arenot compensated

Options or stock

Cash

Percent

53. (if yes to q50) do any of your board observers include internal management employees that have high potential to become senior executives within the company?

Percent

yes 52

no 48


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

54. if yes to q53 do these positions rotate among internal managers of the company (e.g., a new person(s) every year or every other year)?

Percent

yes 23

no 77


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

55. (if yes to q50) are board observers ever (please check all that apply)

Percent

investors 21

customers 1

Suppliers 0

Employee representatives 18

other 25

0 5 10 15 20 25

Other

Employeerepresentatives

Suppliers

Customers

Investors

Percent


56. (if yes to q50) How are board observers identified and sourced? (please check all that apply):

Percent

management recommendation 46

director recommendation 18

recommendation by an investor 1

recommendation by a consultant 4

recommendation by an outside third party 0

other 18

0 10 20 30 40 50

Other

Recommendationby an outside

third party

Recommendationby a consultant

Recommendationby an investor

Directorrecommendation

Managementrecommendation

Percent

57. (if yes to q50) What value do board observers add to the company? (please check all that apply):

Percent

deeper company knowledge 61

deeper industry knowledge 29

deeper functional knowledge 29

Scientific Knowledge 4

regulatory Knowledge 21

Business relationships 25

Governmental relationships 4

other 11

0 10 20 30 40 50 60 70 80

Other

GovernmentalRelationships

BusinessRelationships

RegulatoryKnowledge

ScientificKnowledge

Deeper functionalknowledge

Deeper industryknowledge

Deeper companyknowledge

Percent

58. (if yes to q50) Which of the following are most likely to have a board observer (please check all that apply):

Percent

meeting of the full board 79

meeting of the audit committee 39

meeting of the compensation committee 21

meeting of the nominating and governance committee 11

meeting of a specialized committee (such as finance, risk, technology, etc.) 14

0 10 20 30 40 50 60 70 80

Specializedcommittee

Nominatingand governance

committee

Compensationcommittee

Meeting of theaudit committee

Meeting ofthe full board

Percent


59. (if yes to q50) does the presence of a board observer influence the discussion or level of candor in the formal boardroom?

Percent

yes 17

no 83


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent

60. (if yes to q50) Has a board observer ever been added to the board as a full voting member?

Percent

yes 17

no 83


0 10 20 30 40 50 60 70 80 90 100

No

Yes

Percent


a b o u t S ta n f o r d u n i v e r S i t y ’ S r o c k c e n t e r f o r c o r p o r at e G o v e r n a n c e a n d H e i d r i c k & S t r u G G l e S

about Heidrick & struggles

Heidrick & Struggles International, Inc., (nasdaq:HSII) is the leadership advisory firm providing executive search and leadership consulting services, including succession planning, executive assessment, talent retention management, executive development, transition consulting for newly appointed executives, and M&A human capital integration consulting. For almost 60 years, we have focused on quality service and built strong leadership teams through our relationships with clients and individuals worldwide. Today, Heidrick & Struggles leadership experts operate from principal business centers globally. . For more information about Heidrick & Struggles, please visit www.heidrick.com.

about stanford university’s rock Center for Corporate governance

The Arthur and Toni Rembe Rock Center for Corporate Governance is a joint initiative of Stanford law School and the Stanford Graduate School of Business, created with the idea that advances in the understanding and practice of corporate governance are most likely to occur in a cross-disciplinary environment where leading academics, business leaders, policy makers, practitioners and regulators can meet and work together. The Rock Center’s goal is to conduct research and tap this wealth of expertise to advance the practice and study of corporate governance. The Rock Center works closely with the Corporate Governance Research Program.

http://www.gsb.stanford.edu/cgrp/


david f. larCker

James Irvin Miller Professor of Accounting; Director of the Corporate Governance Research Program; Senior Faculty, Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University; Codirector of the Directors’ Consortium Executive Program

Website http://www.gsb.stanford.edu/cgrp

Phone (650) 725-6159

Email [email protected]

Professor larcker’s research focuses on executive compensation, corporate governance, and managerial accounting. His work examines the choice of performance measures and compensation contracts in organizations. He has current research projects on the valuation implications of corporate governance, role of the business press in the debate on executive compensation, and modeling the cost of executive stock options.

Professor larcker presently holds the James Irvin Miller Professorship. He is the director of the Corporate Governance Research Program at the Stanford Graduate School of Business and senior faculty of the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University.

He recently co-authored the book Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences, published by FT Press-Pearson Prentice Hall in April, 2011. He has also authored numerous academic research papers, case studies, corporate governance closer look studies, and articles for the popular press including Do You Have A Plan For Finding Your Next CEO? The Corporate Board September/October 2010 with Stephen Miles of Heidrick & Struggles.

Dave’s research has been often cited by the WSJ, BloombergBusinessWeek, FT, Forbes, NY Times, Agenda, NACD Directorship, Corporate Board Member, SHRM and Corporate Secretary Magazine among others.

Professor larcker was previously the Ernst & Young Professor of accounting at the Wharton School of the University of Pennsylvania and Professor of accounting and information systems at the Kellogg Graduate School of Management at northwestern University. He received his PhD in Business from the University of Kansas and his BS and MS in Engineering from the University of Missouri- Rolla.

He is on the editorial boards of the Journal of Accounting and Economics, Journal of Accounting Research, Accounting, Organizations and Society, Journal of Accounting and Public Policy, Journal of Applied Corporate Finance. Professor larcker received the notable Contribution to Managerial Accounting Research in 2001. He is also a trustee of the Wells Fargo Advantage Funds.


stepHen a. Miles

Vice Chairman, Heidrick & Struggles

Phone (404) 538-0119

Email [email protected]

Stephen Miles is a vice chairman of Heidrick & Struggles. He runs leadership Advisory Services within the leadership Consulting Practice and oversees the firm’s worldwide executive assessment and succession planning activities. He is also a key member of Heidrick & Struggles’ Chief Executive Officer & Board of Directors Practice. With more than 15 years of experience in assessment, top-level succession planning, organizational effectiveness and strategy consulting, Stephen specializes in CEO succession and has partnered with numerous boards of global Fortune 500 companies to ensure that a successful leadership selection and transition occurs. He also has led many chairman successions and board effectiveness reviews, partnering with boards of directors to help them with their overall effectiveness, committee effectiveness and individual director effectiveness. Additionally, he is a recognized expert on the role of the chief operating officer, and has consulted numerous companies on the establishment and the effectiveness of the position and supporting the transition from COO to effective CEO.

Stephen is a coach to many CEOs and COOs around the world. He has built the Practice’s coaching expertise by focusing on high-performance leadership competencies with a heavy emphasis on the business and cultural context. Stephen works extensively internationally, and his clients cut across all industry sectors. Stephen and his CEO advisory services were profiled in the BusinessWeek article “The Rising Star of CEO Consulting”.

Prior to joining Heidrick & Struggles, Stephen held various positions at Andersen Consulting.

Stephen is author and co-editor of the best-selling business book Leaders Talk Leadership. He also co-authored Riding Shotgun: The Role of the Chief Operating Officer, as well as the cover article in the May 2006 issue of Harvard Business Review* on the same topic. Stephen also co-authored the feature article in the April 2007 issue of Harvard Business Review titled: “The Leadership Team—Complementary Strengths or Conflicting Agendas? Great top teams work to their members’ disparate strengths—but those differences can cause discord, too, especially during succession.”

His third book, Your Career Game: How Game Theory Can Help You Achieve Your Professional Goals, was released in April 2010 (Stanford University Press) and he has also recently completed a chapter on “Assessing the leader” for linkage Inc.’s Best Practices in Leadership Development Handbook 2nd edition; Wiley 2009. Stephen is the author of the Stanford Graduate School of Business case study entitled “Multimillionaire Matchmaker: An Inside Look at CEO Succession Planning.” Stephen has also been featured in Forbes, BusinessWeek, Boardroom Intelligence, Strategy + Business, WSJ/MIT, Consulting Magazine, MIT Sloan, Ivey Business Journal, and CEO Magazine. He is a frequent speaker on the topics of CEO succession, coaching C-level executives, talent management and complementary leadership at the top (high performance teams).

Stephen is a member of the Heidrick & Struggles’ Management Committee. He is an independent director for Overlay.TV and DnA13, and an advisory board member at Rypple and The Pythian Group.

He has lived in Kenya, South Africa, Iraq, Argentina and Canada.

* “Second in Command: The Misunderstood Role of the COO” was a McKinsey Award finalist for the best article in Harvard

Business Review in 2006.


If you have any questions about this survey, please contact:

Michelle e. gutmanAssociate Director, Corporate Governance Research Programs

Arthur and Toni Rembe Rock Center for Corporate Governance Stanford Graduate School of Business Knight Management Center 655 Knight Way, C222 Stanford, CA 94305-7298 (USA)

Phone: +1.650.736.7420

Email: [email protected]

c o n ta c t i n f o r m at i o n

Copyright © 2011 by the Board of Trustees of the leland Stanford Junior University and Heidrick & Struggles. All rights reserved. 10.21.2011

2011 Corporate Board of Directors Survey with Heidrick & Struggles

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